Glossary
This is a work-in-progress. The goal of this page is to provide a glossary of finance terms for our readers, so that if they come across a finance term that they are unsure of the meaning, they can simply navigate to this page to seek out a definition, without having to navigate away from this website. More to come.
401(k). A retirement plan that allows employees to save and invest for their own retirement by authorizing the employer to deduct certain amounts of money from their paychecks before taxes and to invest the money in options offered by the employer through the plan.
529 Plan. A program to prepay college expenses. Also known as a Qualified Tuition Program (QTP).
Annual Percentage Rate (APR). The interest rate charged on the unpaid balance of a credit card account.
Adjustable Rate Mortgage (ARM). A mortgage in which the interest expense is recomputed annually.
Budget. A written spending plan listing all sources of income and all items of expense.
C Corporation. An entity consisting of one or more owners offering limited liability, centralized management, and free transferability of interests.
Closing Costs. Additional expenses added on to a mortgage loan including the down payment, points, loan origination fees, and other miscellaneous expenses.
Coverdell ESA (CESA). An individual retirement account allowing a specific tax-free annual contribution per child which may be used for qualifying educational expenses. The account used to be referred to as an Education IRA.
Defined Benefit Pension Plan. A retirement plan obliging the sponsor to make specified dollar payments to qualifying employees at retirement.
Defined Contribution Pension Plan. A retirement plan whose sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants.
Factoring. A loan, usually at a high rate of interest, secured against the accounts receivable.
Free Application for Federal Student Aid (FAFSA). To obtain student aid based on need, students must file this application form which is available online.
Federal Housing Authority (FHA) Mortgage. A government insured home loan program that banks participate in allowing home buyers to purchase a home with only a five percent down payment.
General Partnership. A business entity established and co-owned by two or more persons with the intent of making a profit.
Home Equity Loan. A loan secured by the equity in a home. The interest is usually tax-deductible.
Initial Public Offering (IPO). A stock sale in which a previously private company goes public.
Individual Retirement Account (IRA). A self-funded retirement plan that allows employed individuals to contribute up to a maximum yearly sum toward their retirement while deferring tax on the interest until retirement.
Joint Tenancy. A form of ownership of property by two or more individuals that gives equal ownership interest regardless of the contributions each tenant made. A surviving joint tenant immediately becomes the owner of the whole property upon the death of the other joint tenant(s). Also known as Joint Tenancy With Right of Survivorship (JTWROS).
Limited Liability Company (LLC). An entity that can be taxed as either an S corporation or as a partnership. Owners of an LLC can contribute to management without compromising their limited liability protection. There is no restriction on the type or number of owners.
Limited Liability Partnership (LLP). An entity that is similar to both a general partnership and a limited liability company that offers more liability protection than a general partnership and that is designed for professions that face malpractice suits.
Limited Partnership. A business entity established with one or more general partners and one or more limited partners with the intent of making a profit.
Medicaid. A federal program that covers nursing home care for those who are financially destitute.
Points. Prepaid interest expense added on to the cost of obtaining a mortgage and included in the closing costs.
Professional Corporation (PC). A corporation treated as a single entity that can be taxed as either a C corporation or as an S corporation whose members usually belong to a licensed profession.
Qualified Tuition Program (QTP). A program to prepay college expenses. Also known as a 529 Plan.
Roth IRA. An individual retirement account allowing contributors to make annual contributions and to withdraw the principal and earnings tax-free under certain conditions.
S Corporation. An S corporation combines limited liability with pass-through taxation. It is limited to 75 shareholders.
Sole Proprietorship (SP). A sole proprietorship is a one-owner, one-operator business. It is not taxed as a separate entity, but the sole proprietor reports profits and losses on his or her personal tax return.
Tenancy in Common. A form of ownership of property by two or more persons without the right of survivorship. On the death of one co-owner, his or her interest in the property will pass not to the other surviving co-owner(s) but according to the decedent’s will.
Tenancy by the Entirety. A form of ownership of property between a husband and a wife. One spouse cannot dispose of his or her share in the property without the consent of the other spouse.
